1. The basis of air operator licensing in the United Kingdom is the Licensing Regulation 1008/2008 [1] which came into force in September 2008 and provides that an air operator based in the European Economic Area (EEA) [2] must hold an Operating Licence granted by the State where it has its principal place of business and (if appropriate) its place of registration. .

2. The requirement for an air operator to hold an Operating Licence granted by the State in which it is based extends to virtually all carriage by air anywhere in the world of either passengers or cargo for remuneration, irrespective of whether the sale is made to the general public or to a charterer. Corporate operations involving no remuneration, other than between companies within a group, are not affected.

3. An Operating Licence is a requirement for entry and it has to remain in force for the holder to be able to carry passengers, cargo or mail for remuneration. It does not in itself authorise flights on any route, but allows the holder to benefit from route authorisations granted separately.

4. Flights within the EEA are authorised by the Licensing Regulation which allows Operating Licence holders to operate on most routes in the EEA without needing a further licence or permit from any State. There is no restriction on flights being either scheduled or charter (that is, selling seats direct to the public or selling them to a tour operator) and they may be a mixture of the two.

5. States may limit access to routes on which “public service obligations” apply.

6. For routes which are not within the EEA, and for intra-EEA routes which are not generally available under the Licensing Regulation but where specific authorisations are possible, holders of Operating Licences also generally need to hold Route Licences. These are dealt with in Part 2.

7. Article 4 (c) of the Licensing Regulation requires States to ensure that carriers licensed by them have one or more aircraft at their disposal, and Article 12 permits States to decide whether carriers should be required to use aircraft on their national register or aircraft registered anywhere within the EEA. In the United Kingdom the Secretary of State, has decided that holders of Operating Licences issued by the CAA must use aircraft registered in the United Kingdom. However, the Regulation permits waivers to be granted from the requirement to use UK-registered aircraft, and the Secretary of State may grant waivers in specific circumstances. In addition, Article 12 of the Regulation requires that any lease to or by the holder of an Operating Licence granted by the CAA, of a UK or foreign registered aircraft, must be approved by the CAA for the purpose of ensuring safety and liability standards. .

10. The CAA grants two types of Operating Licence, Type A and Type B, the former being for larger operators and the latter for minor operators. “Minor operators” are mainly those which operate (or lease in) aircraft having less than 20 seats: these operators are specially recognised by Article 5 of the Licensing Regulation, which permits a simplified entry procedure for them. The CAA system allows additionally that in some instances operators of larger aircraft with a limited scope of activity (for example, air taxi work) may also be granted a Type B licence, though the Licensing Regulation does not allow the simplified entry procedure to be used for them. After grant, the difference between the two types is that a Type B licence restricts the size of aircraft that may be used or the type of activity, but it carries fewer obligations in respect of financial information, statistics and charges. These differences are dealt with in the relevant paragraphs below.

11. The criteria for grant of Operating Licences are set out in the Licensing Regulation and must be applied by all EEA States. The Regulation also states that any undertaking meeting those criteria is entitled to be granted an Operating Licence. They relate principally to the place and nature of business; nationality of ownership and control; adequacy of financial resources; the holding of an Air Operator’s Certificate; fitness; and passenger and third party insurance. The requirements in relation to each and, where appropriate, the CAA’s approach to ensuring that they are met are set out below.

12. Article 2 of the Licensing Regulation provides that EEA States may grant Operating Licences only to air operators whose principal place of business and registered office (if any) are within their territory. The CAA may therefore grant Operating Licences only to operators based and registered in the United Kingdom, which does not include the Channel Islands or the Isle of Man. There is a further requirement in the Licensing Regulation that the main occupation of the licence holder must be either air transport alone or air transport combined with other aviation activities.

15. Article 5.1 of the Licensing Regulation requires that an applicant for an Operating Licence must be able to demonstrate that it can meet its obligations, established under realistic assumptions, for the first 24 months of its operation; and that it can meet its costs for the first three months of operation without any income. Article 5.2 specifies the information which must be provided for the licensing authority to reach a decision on these criteria. Article 5.3 makes an exception for operators of aircraft with less than 20 seats or 10 tonnes maximum take-off weight, who may instead either demonstrate a minimum capitalisation or supply information to the licensing authority on being requested to do so.

16. The CAA does not regulate the finances of minor operators and does not normally seek financial information from applicants for Type B licences, except to the extent necessary to establish compliance with nationality requirements.

17. For operations using larger aircraft, the CAA requires applicants to provide a business plan for the first two years of operation and considers this to decide how much capital is necessary to meet the criteria set out in Article 5.1. It looks critically at forecast traffic, revenue and costs in the light of information on similar routes or operations, taking into account the existence of contracts and the degree of risk involved. Before reaching a final view, it discusses with the applicant any aspects where it believes the forecasts are optimistic. It then adjusts them if appropriate and indicates a figure for capitalisation which is intended to ensure that there will be a surplus of net assets and sufficient cash resources during the first two years of operation. The CAA will grant an Operating Licence only when the necessary financial arrangements have been executed and the other criteria have been met.

18. Article 4 (h) of the Licensing Regulation requires that operators should be insured against their liabilities arising from accidents. A further Regulation referred to in this Guide as the Council Air Carrier Liability Regulation[5] establishes unlimited liability on holders of Operating Licences in the event of death or injury resulting from an air accident, and requires that carriers must be insured up to at least 100,000 SDRs per passenger and at a reasonable level for third party risk.

19. Articles 3 and 5 of the Council Air Carrier Liability Regulation also requires that holders of Operating Licences must make available to passengers, in their ticket documents and conditions of carriage, information on passenger liability. Certain consequential matters from this Regulation were effected in the United Kingdom by the Air Carrier Liability Order 1998.

20. Council Regulation 785/2004 on insurance requirements for air carriers and aircraft operators establishes minimum insurance requirements for air carriers and aircraft operators in respect of passengers, baggage, cargo and third parties (including War Risk). The CAA requires airlines to provide evidence countersigned by their broker that they have obtained the required cover. The requirements vary, particularly in relation to third party cover, according to the weight and size of the aircraft used. The minimum levels are set out here - Insurance. The Civil Aviation (Insurance) Regulations 2005 provide for the CAA to act as the competent authority for the purposes of the Regulation.

21. Article 9 of the Council Licensing Regulation requires that Operating Licences may be granted only to firms that hold an Air Operator’s Certificate (AOC), complying with criteria laid down in the relevant Council Regulation[6] The current requirement in the UK is contained in Article 6 of the Air Navigation Order 2005, which requires an AOC granted by the CAA’s Safety Regulation Group to be held in respect of most flights by UK-registered aircraft used on public transport operations.

22. Article 4 (i) of the Licensing Regulation deals with evidence of “good repute” in applicants for Operating Licences, and evidence that none of the persons managing the business is an undischarged bankrupt. More information can be found here.

23. Some prospective new entrants propose to begin by marketing air services, with the flights being operated by an existing licence holder. This does not require an Operating Licence or an AOC, provided that the licence holder has the management of the aircraft, but it will in general require an Air Travel Organiser’s Licence (ATOL). In considering applications for an ATOL in these circumstances the CAA will apply the same financial and other criteria that it would for grant of an Operating Licence rather than its standard ATOL criteria. It will also be concerned to restrict such arrangements to the short term: applicants should be aware that for routes outside the EEA, receiving countries may raise objections, and this is not usually a practical long-term basis on which to manage an airline operation.

24. Article 8 of the Licensing Regulation requires operators to notify licensing authorities of changes to their operation and, if requested to do so, to supply revised business plans. Article 9 gives licensing authorities the power to suspend or revoke a licence if they are no longer satisfied that the holder can meet its financial obligations for the next 12 months. In the UK, decisions by the CAA are subject to published procedures and to appeal to the Secretary of State, as set out in the CAA Regulations[7].

25. The Licensing Regulation leaves it to the discretion of licensing authorities how far they should regulate an operator’s finances after an Operating Licence has been granted, and the extent to which the CAA intervenes in the finances of licensed airlines varies according to the category of business. It does so chiefly where there is a consumer protection issue, and where it has the ability to influence events so as to benefit the operator’s customers; there is also an issue of materiality, with the potential benefits set against the costs of monitoring.

26. With these criteria in mind, the CAA does not normally regulate the finances of Type B Operating Licence holders or of Type A licence holders engaged in cargo, sole use charter, or air taxi operations once licences have been granted. The CAA would usually require these operators to provide only limited information to establish continued compliance with nationality requirements.

27. The CAA monitors the financial performance and position of most other operators, and may in certain circumstances take action to revoke an Operating Licence. Its objective in doing so is primarily to secure a better outcome for the travelling public, and revocation will in many cases not have this effect: revoking a licence will turn a potential failure into an actual failure and may lead to losses on the part of ticket holders and disruption to passengers’ travel plans. However, revocation or suspension may still achieve a benefit if it minimises the effects of an inevitable failure, and this may happen where a charter operator’s licence is revoked outside the peak season or a scheduled operator’s licence is revoked so as to prevent planned expansion. These principles are behind the extent to which the CAA may require more detailed information from certain types of operator at particular times, such as prior to major expansions.

28. Annex 3 contains basic lists of the regular information the CAA is likely to require from licence holders. The first list contains items that are required from all licence holders for the purposes of monitoring nationality of ownership and control and insurance cover, while the second contains the aircraft fleet details and the third list contains the financial information routinely required from Type A licence holders that are subject to monitoring. As noted above, it may require more or less financial information according to particular circumstances, and examples of additional items are contained in the fourth list.

29. Fares between two points in the EEA are governed by a Council Regulation[8] and implementing UK regulations[9] . Airlines are able to set fares freely, although Member States can invoke safeguards against an excessively high fully flexible fare or a downward spiral of fares. Member States may also choose whether to require airlines to file fares up to 24 hours before they take effect. The CAA, which performs the functions in the UK relating to fares filing, does not require fares to be filed.

30. Regulation 11(1) of the Licensing of Air Carriers Regulations prohibits Operating Licence holders from making available flight accommodation for resale in the United Kingdom unless they are satisfied that the buyer or agent complies with the Civil Aviation (Air Travel Organisers' Licensing) Regulations 1995 (the ATOL Regulations) – either by holding an Air Travel Organisers' Licence or by supplying a valid ticket in exchange for payment. Normally, only IATA accredited agents will be able to comply with the latter criterion, and the CAA expects airlines to ensure that they distribute seats only through ATOL holders or IATA agents. Further guidance on compliance with Regulation 11(1) is given in the ATOL Guidance Note at Annex 4.

32. The procedures that affect applications for Operating Licences are contained partly in the Licensing Regulation itself and in the Licensing of Air Carriers Regulations.

33. Article 10 of the Licensing Regulation requires licensing authorities to deal with any application promptly and in any event not later than three months after all the necessary information has been provided; and that a decision (with reasons, in the case of a refusal) should be given to the applicant. It provides a right of appeal to the European Commission against any refusal, and requires that decisions by States to grant or revoke Operating Licences should be published in the Official Journal of the European Communities.

34. The CAA Regulations, as amended by the Licensing of Air Carriers Regulations, require that any decision to refuse an Operating Licence must normally be made by two Members of CAA and provides for an appeal to the Secretary of State (in addition to the right of appeal to the European Commission) against any decision to refuse an Operating Licence.

35. Article 10 of the Licensing Regulation also requires States to publish the procedures they adopt in dealing with Operating Licence applications. The CAA’s procedures, beyond those laid down in legislation, are set out in Annex 5.

36. There are fixed charges for applications for Type A and Type B Operating Licence, and if an application involves a higher than normal amount of work, the CAA may at its discretion also make a similar charge for the grant of the licence.

37. After a licence is granted, there are no further charges for Type B Licences. For Type A Operating Licence holders, there are variable charges which vary according to the number of passenger kilometres (or in the case of cargo, tonne kilometres) carried on public transport flights with aircraft for which a Type A licence is required.

[1] Council Regulation (EEC) No 1008/2008 on Common rules for the operation of air services in the Community (Recast), referred to in this Guide as the Licensing Regulation.
[2] The Licensing Regulation referred to the European Community and EC Member States. Since the Regulation came into effect, its scope has been extended to the European Economic Area, which includes Iceland, Liechtenstein, Norway and Switzerland as well as EU Member States. References in this publication are to the EEA throughout, amending where necessary earlier references to the EU. The terms “States” and “EEA States” are used in this Guide to mean EU Member States plus those named above.
[3] The Operation of Air services in the Community Regulations 2009.[4] References to the Secretary of State are to the Secretary of State for Transport.
[5] Council Regulation (EC) No 2027/97 on air carrier liability in the event of accidents
[6] Council Regulation (EEC) No 3922/91 on the harmonisation of technical requirements and administrative procedures in the field of civil aviation.
[7] The Civil Aviation Authority Regulations 1991.
[8] Council Regulation (EEC) No 2409/92 on fares and rates for air services.
[9] The Air Fares Regulations 1992.